Finance market reacts to Chinese drilling-rig deployment

VietNamNet Bridge – The Vietnamese finance market has been in flux since early May due to the political uncertainties caused by China’s provocative activities in the East Sea.

Finance market, east sea

Though investors have calmed down after days of panic, it is still too early to say that the finance market will be safe.

The tensions in the East  Sea began escalating on May 1, and the VN Index tumbled by 70 points, from 580 to 508, on May 5, when the stock market opened again after the long holiday.

The fact that investors rushed to sell shares amid worries about the tensions in the East Sea evoked memories of the same thing occurring two years ago, analysts said. That was when Nguyen Duc Kien, one of the most influential businessmen in Vietnam, was arrested on charges of economic crimes.

However, the arrest of Kien two years ago shook the finance and banking sector only, while the East Sea problem sent reverberations throughout the whole national economy. Thus, the anxiety prompted investors to sell shares no matter what, despite reassurances from the State Securities Commission and prominent analysts.

In the interbank market, interest rates increased sharply, with overnight interest rates climbing to 4.15 percent per annum and one-week interest rates at 4.2 percent per annum, the highest rates since late January.

The political news also affected capital flow as commercial banks, which were ready to disburse money for credit contracts, but changed their strategies, prioritized to ensure liquidity.

This explained why the OMO (open market operations) last week could, once again, attract attention from banks, which had been indifferent to OMO before. Thoi bao Kinh te Saigon quoted sources as saying that the net capital the State Bank pumped through OMO during the week of May 12-16 was high, at VND550 billion.

After the stock market witnessed continued falls of the VN Index, the cash flow then headed for gold and foreign currency markets as “shelters”.

However, the two markets got hot late last week. The dong/dollar exchange rate quoted by commercial banks was VND50 per dollar higher than the official rate announced by the State Bank of Vietnam at VND21,036 per dollar on May 16. The greenback price even increased more sharply in the black market, at times hitting nearly VND21,300 per dollar.

As for the gold market, the domestic gold price soared by VND1 million per tael to VND36.5 million within only one week, although there was no considerable price fluctuation in the world market at the same time.

While domestic investors were panicking, foreign investors remained calm, taking full advantage of the stock price plunges to buy more shares.

A report showed that their net purchase volume reached VND1.5 trillion on the HCM City bourse, much higher than the VND100 billion net purchase volume reported in April.

International reports also disclosed that foreign investors’ viewpoints about the Vietnamese financial markets had remained unchanged despite the East Sea tensions.

Since early April, the CDS (credit default swap) prices for Vietnamese government five-year bonds has been hovering around the 210 point threshold, relatively lower than the 250-260 point threshold set  earlier this year.

And the price of NDF (non-deliverable forward) for 12-month futures contracts on the dong  has been firm, standing at VND22,375 per dollar over the last month.


Finance market, east sea